Stay ahead of the curve with our in-depth analysis of repo rate decisions and their implications for India's economic landscape
When it comes to handling a country's economy and financial markets, one crucial tool may be found in monetary policy. The repo rate—short for "repurchase rate"—is the name given to this instrument. The repo rate is a benchmark interest rate used by the Reserve Bank of India (RBI) to facilitate the smooth operation of the monetary system.
The word "repo rate" appears frequently in banking and monetary policy conversations. It refers to the interest commercial banks pay to RBI for overnight loans secured by those securities.
The repo rate is essential for the RBI to manage money in the economy. By adjusting the repo rate, the RBI can influence how much it costs for banks to borrow money, affecting the interest rates for loans and savings. Several aspects of the economy are sensitive to changes in the repo rate, including inflation, currency exchange rates, and overall economic growth.
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The repo rate is determined by the RBI’s willingness to buy or sell government assets to deposit or withdraw funds from the banking sector. When the RBI wants to make more money available, it lowers the repo rate. This lowers the cost of borrowing money from the RBI for financial institutions. The repo rate is increased by the RBI to discourage banks from borrowing money and thereby lower the money supply.